Troll hunter: meet the Oregon lawmaker who may fix the patent mess

Rep. Peter DeFazio took on the issue after a local software company got held up.

This morning, Representatives Peter DeFazio (D-OR) and Jason Chaffetz (R-UT) introduced the SHIELD Act, which would create a "loser pays" system for some types of patent litigants. The bill is meant to stymie companies that do nothing more than file patent lawsuits.

Ars spoke with DeFazio at CES 2013 in January, when this bill was still in the formative stages, to get some background about how the bill developed, and the problems the Oregon representative hopes it will solve.

DeFazio has been in Congress since 1987, and represents Oregon's 4th District, which covers a wide swath of Western Oregon. It includes Eugene, the state's second largest city and home to the University of Oregon.

Ars: When people think about who's concerned about patent trolls, they immediately think of big Silicon Valley companies that were aggressively pushing patent reform back in 2007, not necessarily Oregon. How did you get interested in this issue?

Rep. DeFazio: Well, about two years ago I was visiting a local company—which needs to remain unnamed, because of the fear of attracting more attention from patent trolls. We have quite a few software developers in Eugene, as well as up in Portland. This was a small, growing company, about 80 employees. They were on the verge of launching a new product. And typically, that's when patent trolls strike.

I think the trolls' focus in recent years has shifted from big companies to growing companies, or even startups, at the point at which they have enough resources to pay a blackmail, or bribe—whatever you want to call what these people are extorting from folks.

Anyhow, I was vaguely aware of the problem. Like a lot of people, I'd read a couple articles about it, but it didn't bring it home. In talking to the CEO of this company, I found out that basically, [the threat] came at a point where they needed to add employees. But because of the pending litigation, they were afraid to add anyone, because of the added cost.

That brought it home. I've got a district that's desperate for jobs. And when you're talking to someone who's got an established and growing small business, and can't add jobs... Here's this small CEO on the phone with the counsel of Google and other big companies, and they said, well, we'll just divide up the litigation costs. And he said, hah! No way. So, they paid, because they needed to move on.

Ars: And how did you react to that when you went back to Congress?

DeFazio: I figured, well, there's a lot of people more conversant with this issue than me. I figured, there's got to be a bill pending to take care of this problem. It's an outrageous problem. And I asked Michael (a staffer) to check it out. And he comes back and says, "There's no bill." I said, "You've got to be kidding me."

A lot of people were under the mis-impression that after the huge struggle over AIA (the America Invents Act, passed in 2011), that the problem was solved. Now, there are a few small tweaks in the AIA that can help. But it wasn't targeting the real problem.

Ars: How did your colleagues in Congress get the impression that the problem was being taken care of?

DeFazio: Anything that relates to patent reform, or intellectual property, is pretty specialized. It comes mostly out of Judiciary [Committee]. They're all lawyers, and some are very conversant with these issues, while others are attorneys in other areas. So a lot members of Congress may follow the debate, but they don't get into the details of the bill. And with AIA, it was such a prolonged battle. It was touted as such a major reform, and a fix for the problems with the system, so there was a general impression that we'd already taken care of the issue. Even some members of Judiciary had that impression.

Then along came the SOPA/PIPA fight. And everyone said, whoa, these issues are difficult—and hot. So Congress just kind of backed off.

Ars: How did it go when you started talking to your colleagues in Congress about the idea of a bill aimed at the patent troll problem?

DeFazio: We spent a lot of time consulting with a broad range of people on how the heck we're going to do this. I said, look, this is very targeted. They would acknowledge it's a problem but say, 'this is probably not the time.'

But our coalition is building and the bill is evolving. We started out very targeted on software. After being approached by a number of companies we thought would be very helpful to our coalition, we said, we'll include hardware. But [last year's] bill didn't receive action.

Then we started getting calls from other areas, like airlines. Whoa—airlines? Airlines are being sued over their seat selection software. And we started hearing from retailers, who are being sued for their retail format online—for how customers select their purchases, these sorts of things. Suddenly we start saying, wow, there's a bigger universe out there of people who are being impacted.

Then last year, along came this Project Paperless—the people suing over the scanning, and all that. Suddenly, any small business using scanners—they were being asked for $1000 per employee! And, you know, that raised the awareness of the issue to a whole new community. So we decided to try and draft a new version of the bill that will basically capture, or put off, trolls in any productive sector.

And we've got to deal with some varying interests here. We're talking to pharmaceutical companies to make sure they're okay with this.

Ars: So how is this bill different than last year's?

DeFazio: Last year's bill was a procedural standard, and a little more subject to judicial interpretation. Now, it's a more straightforward pleading. It will be like an initial motion or pleading in the case, to make it clear to the troll that it's going to potentially cost them a lot of money. We've got the three-part test, which is for the people who do R&D, people who manufacture—and the third part is the toughest part, to have some allowance for people who hold patents beyond what they've developed themselves, but are not trolls. That's the trickiest standard.

This is tricky. I'm not going to say this is easy to do.

Ars: It sounds like you guys are trying to do what has been challenging for a lot of folks in legal and technology circles, which is to say, define what exactly is a patent troll.

DeFazio: Yes. And they can morph. You know, people are really smart. It's like regulating Wall Street. You regulate this one product, and they can figure out a new one. But we're trying to have a standard that a normal human—and a judge—could understand.

They could plead at the beginning of the case. Establish the status of the entity that is the plaintiff. And if they come up as a non-practicing entity, or a troll, under these definitions, then they know if they go forward, they're on the hook. We're making [the fee-shifting] mandatory, if the defendant prevails. Last time we left a lot more discretion for the judge. This time we're narrowing that, so it's a clearer message.

The second thing we're also putting in is some bonding. If it's established they are going to be on the hook in this case for the fees, if they don't prevail, then they're going to have to bond.

Ars: Why did the idea of a bill specifically targeted towards software and computer patents get dropped?

DeFazio: Some people would like to have something much more targeted—for example, just to software—but that's something that would be harder to build a coalition to get Congress to act on. I mean look, we're dealing with a totally dysfunctional entity here. Last Congress was the least productive Congress in 60 or 70 years, by a factor of 50 percent. Most of the bills we passed were naming post offices. To get something teed up, we're going to need a broad bipartisan coalition, and we're going to need a coalition in the business community. That's what it will take in order to whet the appetite of Congress to go ahead and actually do something.

The issue is the relative ease in which these patents are awarded and not acted upon.

Just make a law stating that if the one bringing the lawsuit can't demonstrate meaningful efforts to develop and bring the idea to market within the past few years. Then the lawsuit is dropped dismissed with prejeduce and patent invalidated.

That will take care of the shell companies or at least force them to sell off their portfolios. That won't stop apple from trying to patent the rounded rectangle or the lower case "i " but thats another can of worms.

This really can't fix the problem. Would the client in this case have gone to court? No. They still had a big chance of losing - and loser pays. The fix is to get rid of software patents completely. Any of this other skirting of the actual issue isn't going to fix it. It may change some tactics, but won't make it "all better". The very real chance of a loss to a troll is not going to make the small company any less likely to have to just pay the troll tax. They can't risk attempting to invalidate the patent and failing.

This really can't fix the problem. Would the client in this case have gone to court? No. They still had a big chance of losing - and loser pays. The fix is to get rid of software patents completely. Any of this other skirting of the actual issue isn't going to fix it. It may change some tactics, but won't make it "all better". The very real chance of a loss to a troll is not going to make the small company any less likely to have to just pay the troll tax. They can't risk attempting to invalidate the patent and failing.

I agree that software patent shouldn't exist but this is an immediately helpful bill that would discourage some debatable amount of trolling and stands a good chance of passing in the near future.

What we really need is for the administration to start pushing for meaningful reform. I know Obama has made some statements that come down a bit on either side of this debate, he needs to be pushed the right way.

I think it would probably help to legislatively broaden the definition of extortion. Make it so that those sending threatening letters can be charged. Also have a way to disbar the lawyers involved on a nationwide basis.

Yeah, I don't think the loser pays fix will help much. The problem is the insane costs of even defending yourself from patent trolls.

Which is the point. If it costs the defending company millions to win the case, then the patent troll has to pay the defending company millions of dollars. It basically makes it so that suing a large company with expensive lawyers on retainer is a non starter unless the troll is 100% they are going to win.

First up I give him props for trying to do something about it. The problem is though that I'm worried this might not really be the fix we're looking for. A troll (be it copyright, or patent) doesn't go after a company usually with the intent on going to court in the first place - thus - they'd rarely be stuck footing the bill anyhow.

Their M.O.:

Step 1: Get a patent/copyrightStep 2: Find a company/individual that allegedly infringes itStep 3: Send a threatening letter and hope the recipient pays upStep 4: Move on to next target

Nowhere in there really is actual litigation, as it rarely happens. The only time you really see litigation is when the target is a large company that has enough resources to defend itself and/or pay to try and get the patent invalidated - yet that is not the target that Rep DeFazio is identifying with in his interview.

In fact, I'm worried that because in order for this legislation to be effective - the case has to go to trial, and that's not something that the typical 'small company' would want to do. Those are the ones who are most likely to just 'shut up/pay up' since they can't afford to even start the litigation process with their limited resources. In fact, this could lead the trolls to more carefully target those same small companies -because- of the limited resourses and higher chance of paying the troll tax. Bigger company with a legal department on retainer already would be more likely to fight.

Hell, if I were one of those companies that was being targeted by Paperless Project, at $1000 per employee I'd have to shell out $12,000. No chance. I'd just throw the damn scanner out, and there's no -way- I could afford to even -start- the fight to invalidate.

As mentioned above - the true fix is in narrowly defining what is actually patentable, fix the system by which patents are granted. Anything else is like trying to chase down chickens in the yard because the coop door is still open.

One thing that may help here that no one else seems to have picked up on is the bonding requirement. If the plaintiff is established as a troll then they will need to post bond on their losing costs before the case moves forward. It means that any time someone refuses to settle and goes to trial the troll needs to pay up. Unless they have huge amounts of capital they won't be able to take many cases to trial at the same time and a coordinated effort from defendants could bankrupt the troll before the cases are even heard.

Why should you have to establish anything about the plaintiff? Why shouldn't you just say, "If you bring a patent infringement lawsuit and you lose, you have to pay the defendant's legal fees, no matter what"? I can't see anything wrong with that. Is there something I'm missing?

If you really wanted to still have this targeted at trolls, you could save the bond requirement for those found to be trolls in the pretrial motion. But then you still have to figure out what a troll is, which I think is basically impossible.

Yeah, I don't think the loser pays fix will help much. The problem is the insane costs of even defending yourself from patent trolls.

Exactly. All this will do is increase the costs of defending yourself.

Courts will just continue to assume that patent examiners are acting on good faith. This will do nothing to discourage trolls because they are still in a better position to threaten a "small software company" with bogus patents. This won't alter jury verdicts. It won't discourage troll suits since it will just increase the Troll's pay day.

all this is going to do is make the trolls scarier to the startups. now they can slap "and you're going to have to pay our legal bills when we're done suing you" onto the tail end of their extortion demands.

You all have not looked at the bill. As I under stand it, if the plaintiff loses, they pay. If the defendant loses, well they are already going to pay. The bill creates more opportunity cost for the plaintiff, they will need to be a lot more sure of their case before they litigate it.

Thinking about patent trolls, IP issues in general, and going on to things like product specifications and designs (for software and hardware), I'm wondering if some of the bright people around here know how to organize things a bit more. Maybe a tool for this already exists.

A law is a kind of specification - but how was it developed, what are its goals, how can its success be tested, what are its side-effects, and how might it be [more publicly and transparently] opened to change? If I had such information I might be able to more fully understand and usefully participate rather than react and spin off into the land of Umbrage and Disaffection.

Is there a tool that allows issues, premises, claims to be stated, considered, tested and refined, with the complete thought process history captured for all to see and review? Each point or statement may generate a branch. And each such branch may, in turn, initiate a thread in which the associated issues are explored and tested, with conclusions folding back into the whole. How would you organize and manage all of the information that relates to a particular idea or area of interest? This is not a simple documentation tool - the Why may be more important than the Who, What, When, and Where.

Sometimes, when I read the comments in Ars, I see how the contributions of different commentators may usefully fit together to create a more solid conclusion. Unfortunately, these forums can be more like debates (or shouting matches...or gladiator school) and can seem to be more about winning than truth seeking (in my opinion, debating != truth seeking). When it comes to conclusions regarding laws, designs, and other plans, I'd like to know why they were developed and what thinking went into their creation. This is a frustration that I also have with product / marketing specifications...I'm often left scratching my head at what I have to implement. Should The Law be as frustrating?

First up I give him props for trying to do something about it. The problem is though that I'm worried this might not really be the fix we're looking for. A troll (be it copyright, or patent) doesn't go after a company usually with the intent on going to court in the first place - thus - they'd rarely be stuck footing the bill anyhow.

Their M.O.:

Step 1: Get a patent/copyrightStep 2: Find a company/individual that allegedly infringes itStep 3: Send a threatening letter and hope the recipient pays upStep 4: Move on to next target

Nowhere in there really is actual litigation, as it rarely happens. The only time you really see litigation is when the target is a large company that has enough resources to defend itself and/or pay to try and get the patent invalidated - yet that is not the target that Rep DeFazio is identifying with in his interview.

In fact, I'm worried that because in order for this legislation to be effective - the case has to go to trial, and that's not something that the typical 'small company' would want to do. Those are the ones who are most likely to just 'shut up/pay up' since they can't afford to even start the litigation process with their limited resources. In fact, this could lead the trolls to more carefully target those same small companies -because- of the limited resourses and higher chance of paying the troll tax. Bigger company with a legal department on retainer already would be more likely to fight.

Hell, if I were one of those companies that was being targeted by Paperless Project, at $1000 per employee I'd have to shell out $12,000. No chance. I'd just throw the damn scanner out, and there's no -way- I could afford to even -start- the fight to invalidate.

As mentioned above - the true fix is in narrowly defining what is actually patentable, fix the system by which patents are granted. Anything else is like trying to chase down chickens in the yard because the coop door is still open.

I think that's what this bill is attempting to fix. It gives much more leverage to the alleged inffringer when they get these letters. And enables them to say, "I'm not paying that so go ahead and sue me". Sure it's a battle but, as with copyright trolls, patent trolls of this nature want the quick easy payout, not a protracted legal battle.

This bill would give a slight advantage in those cases. It is not a total fix, but is a step in the right direction.

This morning, Representatives Peter DeFazio (D-OR) and Jason Chaffetz (R-UT) introduced the SHIELD Act, which would create a "loser pays" system for some types of patent litigants. The bill is meant to stymie companies that do nothing more than file patent lawsuits.

Um. This guy does know that most Patent Trolls have been winning their cases until very recently right ?

Quote:

DeFazio has been in Congress since 1987, and represents Oregon's 4th District, which covers a wide swath of Western Oregon. It includes Eugene, the state's second largest city and home to the University of Oregon.

I appreciate the good he might be doing - in this case (among any other past actions) - that being said however - Career Politicians are a bad thing in general and are a key problem with Congress as a whole.

There's a reason why we have Term Limits on the Presidency - why should a member of Congress be any different ?

Quote:

Rep. DeFazio: Well, about two years ago I was visiting a local company—which needs to remain unnamed, because of the fear of attracting more attention from patent trolls. We have quite a few software developers in Eugene, as well as up in Portland. This was a small, growing company, about 80 employees. They were on the verge of launching a new product. And typically, that's when patent trolls strike.

Yep ! He kept it vague enough to not track this company down and figure it out [end sarcasm].

smallmj wrote:

I think it would probably help to legislatively broaden the definition of extortion. Make it so that those sending threatening letters can be charged. Also have a way to disbar the lawyers involved on a nationwide basis.

Also some pie in the sky....

It shouldn't matter HOW the extortion is brought about - that is irrelevant. What if they send an eMail instead of a hard copy ? Then it's no longer extortion again - no ? What if it's an IM or a TXT Message - 2 more methods that invalidate your approach. What if it's a Facebook post ? What if it's spray painted on the the front of their house ? What if it's 'sky writing' ? Extortion is already defined - how someone goes about it doesn't matter.

mlands wrote:

The issue is the relative ease in which these patents are awarded and not acted upon.

Just make a law stating that if the one bringing the lawsuit can't demonstrate meaningful efforts to develop and bring the idea to market within the past few years. Then the lawsuit is dropped dismissed with prejeduce and patent invalidated.

That will take care of the shell companies or at least force them to sell off their portfolios. That won't stop apple from trying to patent the rounded rectangle or the lower case "i " but thats another can of worms.

You just contradicted yourself. Apple is in fact using the 'squares with round corners' so them applying for a patent on it is a win under your approach. Bad example.

Yeah, I don't think the loser pays fix will help much. The problem is the insane costs of even defending yourself from patent trolls.

Which is the point. If it costs the defending company millions to win the case, then the patent troll has to pay the defending company millions of dollars. It basically makes it so that suing a large company with expensive lawyers on retainer is a non starter unless the troll is 100% they are going to win.

That is, "enforce the tech oligopoly by providing protection that applies to the largest, most entrenched interests from spurious patent suits but leave the rest of us exposed."

Why should you have to establish anything about the plaintiff? Why shouldn't you just say, "If you bring a patent infringement lawsuit and you lose, you have to pay the defendant's legal fees, no matter what"? I can't see anything wrong with that. Is there something I'm missing?

In that scenario, why would any large company ever license a patent from a small company? No startup would ever sue, because losing could bankrupt the company (if they could even arrange a bond).

Contrary to the consensus here, there are plenty of legitimately innovative patents issued, many to small companies. It's one thing to suggest that the whole patent system should be reformed or eliminated, but I don't think anyone wants a system that only protects large companies. Keep in mind that being in the right is no guarantee of winning a legal case, especially with asymmetric spending on legal costs.

At least he is trying to do something about the problem, but the point has been made already that the root cause is that trolls are winning with absurdly vague, overbroad, and obvious patents all the time - which this bill will do nothing to address.

Thinking about patent trolls, IP issues in general, and going on to things like product specifications and designs (for software and hardware), I'm wondering if some of the bright people around here know how to organize things a bit more. Maybe a tool for this already exists.

A law is a kind of specification - but how was it developed, what are its goals, how can its success be tested, what are its side-effects, and how might it be [more publicly and transparently] opened to change? If I had such information I might be able to more fully understand and usefully participate rather than react and spin off into the land of Umbrage and Disaffection.

Is there a tool that allows issues, premises, claims to be stated, considered, tested and refined, with the complete thought process history captured for all to see and review? Each point or statement may generate a branch. And each such branch may, in turn, initiate a thread in which the associated issues are explored and tested, with conclusions folding back into the whole. How would you organize and manage all of the information that relates to a particular idea or area of interest? This is not a simple documentation tool - the Why may be more important than the Who, What, When, and Where.

That's an interesting point. I wish it were true, but to my knowledge, the answer is no.

Sometimes you can find portions of that information here or there. For example, courts will sometimes consult the legislative history of a bill (who said what about it in Congress) to try to determine what Congress (or the state equivalent) was actually attempting to do when they passed it. Some important rules of procedure and similar quasi-legislative enactments also have comments by the authors which shine additional light on the bare text. And there are things like the Model Penal Code and the Restatements of the Law which are enormously influential and which are the product of years or decades of drafting and feedback in the legal community. There are also treatises and scholarly works which try to address these points.

Generally, though, you don't get to see how the sausage gets made. Given how shady some of this stuff can be, I imagine this is not a coincidence. Providing all of that information truthfully would make it clear that there is no rational basis for some laws, except as either quid pro quos or the products of some ideology with no basis in reason. Good luck convincing Congress or a state legislature to go without either of those.

Last Congress was the least productive in 60 or 70 years, by a factor of 50 percent.

Yeah, and I should expect Congress to give this issue consideration, much less due consideration? Congressfolk give due consideration to their own salary raises. If I may be so generous as to call it "consideration". Mental stamina? Not.

"We're talking to pharmaceutical companies to make sure they're okay with this."

Uh, why? You make the laws, not them. Or at least, that is the intent of your job, it's obvious that's not how it works. I appreciate that they are at least starting to address this, but don't consult with other people on whether or not it's ok to do your job, just do it, and let them cry about it.

There is a reason this bill works for the little guys: by putting the troll on the hook to pay legal costs, there will be anti-troll law firms established that go to work for free against these companies. They would be willing to do the work for free for a group of businesses with the idea of getting a big payout in the end from the troll.

The larger scope just reflects the problems with American Legal System in general. In short, the lawyers will continue to make a lot of money. Apple pays their law firm to go after Samsung? The lawyers make money. Samsung defends against Apple? The lawyers make more money. Lawyers abuse the system and are caught? They dissolve the business after making a lot of money (while even the "good" lawyers fighting against this abuse make a lot of money from their clients). If this law goes through? Even more lawyers will make more money, though at least in this case it is the lawyers paying the lawyers. Meanwhile ALL of this money, not mention the money we pay in taxes to keep the courts running, is draining out of the system which could go into making better products, cheaper products, or just plain hiring more employees who could do actual constructive stuff.

But with all those elected or appointed lawyers making the laws and running the government... Well, it is not as if we could expect real reform that would impact the lawyers.

Why should you have to establish anything about the plaintiff? Why shouldn't you just say, "If you bring a patent infringement lawsuit and you lose, you have to pay the defendant's legal fees, no matter what"? I can't see anything wrong with that. Is there something I'm missing?

Someone else has pointed out that there are legitmate innovative patents and those owners should be able to protect those IPs without bankrupting themselves if they lose. There are also defensive patents to consider where a company gains defensive leverage by countersuing using their own patents.

The larger scope just reflects the problems with American Legal System in general. In short, the lawyers will continue to make a lot of money. Apple pays their law firm to go after Samsung? The lawyers make money. Samsung defends against Apple? The lawyers make more money. Lawyers abuse the system and are caught? They dissolve the business after making a lot of money (while even the "good" lawyers fighting against this abuse make a lot of money from their clients). If this law goes through? Even more lawyers will make more money, though at least in this case it is the lawyers paying the lawyers. Meanwhile ALL of this money, not mention the money we pay in taxes to keep the courts running, is draining out of the system which could go into making better products, cheaper products, or just plain hiring more employees who could do actual constructive stuff.

But with all those elected or appointed lawyers making the laws and running the government... Well, it is not as if we could expect real reform that would impact the lawyers.

There is a simple solution for this. Do not elect lawyers. The problem of course is that as the name suggest, the lawyers are good to show black as white. They think that they are smart and very often they are. But are they ethical?

He completely and totally accepts that a trial is beyond the monetary means of anyone but a large corporation. Cost shifting might be a bandaid, but I would rather see the costs reduced, so that ALL of us can participate in the legal system.

DeFazio has been in Congress since 1987, and represents Oregon's 4th District, which covers a wide swath of Western Oregon. It includes Eugene, the state's second largest city and home to the University of Oregon.

I appreciate the good he might be doing - in this case (among any other past actions) - that being said however - Career Politicians are a bad thing in general and are a key problem with Congress as a whole.

There's a reason why we have Term Limits on the Presidency - why should a member of Congress be any different ?

Leaving aside the overall question of term limits, I would point out that Peter DeFazio is pretty good as Congresscritters go, if not quite in the realm of say, Bernie Sanders. I lived in his district before moving up to Seattle, I would rate him above my Rep or Senators up here.